Government looks to cap CMC fees

The Ministry of Justice (MoJ) has set out proposals to restrict the level of fees that claims management companies can charge consumers in an attempt to reduce nuisance calling and speculative claim.

In a consultation paper the MoJ has set out proposals to cap CMC charges in the financial products and services claims sector.

The Government says that some CMCs are charging fees that range from 10% to 40%. On average, it says, consumers are typically charged around 25%-30% of the final compensation that may be awarded. This amounts to around £300 being taken out of every £1000 of compensation paid to a consumer on average.

In an attempt to reduce these charges, the MoJ says that it wants to cap the maximum completion fee to 15% for bulk claims, such as mis-sold payment protection insurance claims with a single lender and cap the overall charge for claims worth more than £2,000 in total to £300.

It also wants to introduce a maximum cancellation fee of £300 for bulk claims when a consumer cancels their contract with a CMC after the initial 14 day cooling off period. In addition it wants to ban CMCs from receiving or making any financial payment for referring or introducing a consumer to a third party in relation to a PPI or PBA claim.

As well as banning upfront fees for all financial claims, the consultation also suggest capping the maximum completion fee to 25% of the final amount of compensation awarded in all other types of financial case.

“It is important that consumers who decide to use a CMC to pursue a financial claim, receive better value for money and are not taken advantage of by companies that may add very little to the claims process in practice,” said the document.

“Based on the level of evidence available at present, the Government considers that further restrictions on charges and the manner in which CMCs can contract with consumers would assist to reduce incentives for CMCs to collect marketing leads, and expects that the number of nuisance calls and speculative claims would be reduced as a result. In turn, we expect that the administrative and financial burden placed on lenders and the Financial Ombudsman would be lessened and the cost of these claims to the industry diminished.”

The consultation closes on 11 April.

Mark Dugdale